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May 12, 2016

Hedge Funds: Finding a Better Alternative | Truth Or Skepticism

By:Josh Fabian

Just because everyone else is doing it doesn’t make it right. If everyone jumped off a bridge, would you? We’ve all heard this at some point in our lives, and probably an early age at that. Ducking responsibility and placing it on someone else just does not fly. So why do hedge funds do it when their performance stinks? Worse yet, why do investors accept this excuse from fund managers for poor returns when they wouldn’t accept it from their own children? Those were the questions Tom and Dylan both attacked.


Sometimes, Tom & Dylan’s debate is a bare-knuckle brawl. Other times, it’s a lovefest to the degree that you can almost see the little hearts popping up on the screen, Periscope-style. They may not agree on everything, but Tom and Dylan enjoy a shared perplexity over investor ambivalence when it comes to poor fund performance.

Hedge funds routinely compare their trading performance with that of their peers. If everyone is down 1%, then being down 1% is acceptable. Or so fund managers would have you believe. It’s easy to attack fund managers for this, and here at tastytrade we don’t shy away from doing so. However, placing blame exclusively on fund managers misses the point.

Self-directed investing requires an investment in your own skills and knowledge. It takes time. It takes effort. It takes not accepting “But everyone else is passive.” But that’s not the only excuse Tom hears.

We provide countless hours of programming. We conduct research that no one else is doing to help create a new generation of better-informed investors. We love what we do, which is why we do it. However, when it comes to how much money is needed to get started, that’s something each investor must decide independently.

Smaller accounts certainly offer some unique challenges. Not getting started because an account will be relatively small is no different from the peer-comparison excuse fund managers readily invoke. At some point, we all have to jump in and swim.

If there’s one thing Tom hates more than anything, it’s his new diet. But excuses run a close second. Just because that is how everyone has always done it does not make it the right way. Wanting to start with a $50,000 account but only having $5,000 is reality for many new traders. Waiting for that other $45,000 before starting is what everyone else is doing. tastytraders look at what everyone else is doing, and then do the opposite.


Josh Fabian has been trading futures and derivatives for more than 25 years.


For more on this topic see:

Truth or Skepticism: Active Investing is a Long Term Process | May 12, 2016




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